Good morning investors,
After one of the most powerful rallies in years, the market showed its first signs of exhaustion yesterday.
The S&P 500 fell 0.4%. The Nasdaq dipped 0.1%. The Dow dropped 0.6%. Both the S&P 500 and Nasdaq touched fresh record highs intraday before retreating, a pattern that often signals near-term consolidation.
Semiconductors, which have led this entire move, gapped higher at the open and then faded throughout the session. The sector that has driven the market to record after record is starting to show signs of needing a breather.
This morning, futures are higher. S&P 500 futures have advanced 0.4%. Nasdaq 100 futures have gained 0.6%. Dow futures have added 123 points, or 0.3%. The QQQ is approaching $700, a psychological level that often attracts attention.
Oil prices are marginally higher after the U.S. and Iran exchanged fire in the Strait of Hormuz overnight. Each side claimed the other struck first. President Trump called it "just a love tap" and said the ceasefire remains in effect.
The April jobs report drops at 8:30 AM ET. Economists expect 55,000 jobs added with unemployment holding at 4.3%.
A Natural Place to Pause
I am not calling for a market crash. The fundamental backdrop remains supportive. Earnings are strong. AI demand continues to accelerate. The labor market is intact. I remain bullish.
But after the magnitude of the move we have seen, some consolidation would be healthy and normal.
The S&P 500 has gained more than 10% since the March lows. The Nasdaq has surged more than 17%. The Philadelphia Semiconductor Index is 56% above its 200-day moving average, a level only seen twice before: July 1995 and March 2000.
Yesterday's price action, where both major indexes hit new highs and then reversed to close lower, is often a sign that the easy money in a rally has been made. The QQQ sitting at $700 represents exactly the kind of round-number psychological target where momentum traders take profits and the market digests gains.
None of this changes the longer-term trajectory. The bull case remains intact. But expecting straight-line moves after a rally of this magnitude is not realistic. Pullbacks are part of healthy markets.
The Jobs Report
This morning's employment data will set the tone for the session.
Expectations are modest: 55,000 jobs added, unemployment steady at 4.3%, average hourly earnings up 3.8% year over year. That would represent a significant slowdown from March's 178,000 but would still indicate a labor market that is cooling rather than collapsing.
Not that long ago, payroll growth below 100,000 would have signaled recession risk. No longer. With labor force growth slowing, that kind of number is now sufficient to keep unemployment stable and the Fed on hold.
The picture beneath the surface matters more than the headline. Bank of America data shows the top one-third of earners saw 6% after-tax wage gains in April, while the bottom third saw just 1.5%. With consumer prices up 3.5%, that means lower earners experienced a net loss of real income.
The K-shaped economy persists and I now see inflation as the bigger threat to the fed.
Iran: "Just a Love Tap"
The U.S. and Iran exchanged fire in the Strait of Hormuz overnight after a trio of U.S. Navy destroyers transited the waterway. U.S. Central Command said military forces "intercepted unprovoked Iranian attacks and responded with self-defense strikes."
President Trump said there was "no damage done to the three Destroyers, but great damage done to the Iranian attackers." He characterized the incident as "just a love tap" and indicated the ceasefire remains in effect.
A senior Iranian official told the Wall Street Journal that Iran would not allow the U.S. to reopen the Strait with an "unrealistic plan" and would not let the U.S. leave the conflict without paying reparations.
The 14-point peace proposal remains under discussion. Nothing has been finalized. The market continues to price in meaningful probability of a deal, but the situation remains fluid.
I am watching the actual deal for a potential sell the news event with the market having basically priced in peace already.
CoreWeave: Revenue Beats, Guidance Disappoints
CoreWeave reported after the close, beating revenue expectations but issuing lighter-than-expected guidance.
Revenue of $2.08 billion topped the $1.97 billion consensus, more than doubling from $981.8 million a year ago. But the company projected second-quarter revenue of $2.45 billion to $2.6 billion, with the midpoint trailing the $2.69 billion estimate.
"We have reached hyperscale," CEO Mike Intrator said on the call. The company now has 10 clients committed to spending at least $1 billion on its products, diversifying beyond the Microsoft concentration that previously dominated revenue.
CoreWeave raised its capital expenditure forecast to $31 billion to $35 billion, citing higher component prices. The company closed the quarter with nearly $25 billion in debt and a $99.4 billion revenue backlog.
The stock fell as much as 10% in extended trading. Even in a market hungry for AI infrastructure, valuation and execution matter.
Nvidia's Supply Chain Vision
Nvidia CEO Jensen Huang outlined an ambitious vision for rebuilding American manufacturing this week, centered on the company's partnership with Corning.
"We're going through the single largest infrastructure buildout in human history," Huang said. "Artificial intelligence is going to become fundamental infrastructure all over the world, and surely here in the United States."
The partnership centers on optical technologies used to connect chips within massive AI data centers. Huang said the next generation of AI infrastructure will require enormous amounts of optical connectivity as computing demands rapidly increase to the point where copper wires cannot keep up.
"We're going to scale up optical at a scale that, quite frankly, no optical companies have ever enjoyed," he said.
Nvidia made a multi-billion-dollar prepayment to help fund new Corning factories in Texas and North Carolina, creating more than 3,000 jobs. This is the Copper Wall thesis I wrote about yesterday playing out in real time.
The Broader Earnings Picture
The fundamental story continues to support equities.
Looking to Q2, Q3, and Q4, analysts are expecting 20% or higher earnings growth on a year-over-year basis. The momentum is not expected to let up. There is dispersion across sectors, but the aggregate picture remains strong.
Strong tech earnings have put the Nasdaq on pace to climb 2.8% on the week. The S&P 500 is tracking toward a 1.5% weekly gain. The Dow has lagged with just a 0.2% advance.
The gains are broad-based, driven by fundamental improvement rather than multiple expansion alone. Record earnings continue to beget record stock prices.
Trump Issues EU Trade Deadline
President Trump gave the European Union until July 4 to ratify its trade agreement with the U.S., threatening to raise tariffs to "much higher" levels if the bloc fails to comply.
"I agreed to give her until our Country's 250th Birthday or, unfortunately, their Tariffs would immediately jump to much higher levels," Trump said, referring to European Commission President Ursula von der Leyen.
The EU said it remains "fully committed" to implementation of the deal struck in Scotland last July, with "good progress being made towards tariff reduction by early July."
Meanwhile, a U.S. trade court ruled that Trump's latest 10% global tariffs were not justified under U.S. law, marking another legal setback for the administration's trade policy.
Toyota Misses on Tariff Pressure
Toyota reported a 49% drop in fourth-quarter operating profit, missing estimates as U.S. tariffs and competition from Chinese automakers pressured earnings.
Operating profit of 569.4 billion yen missed the 813.28 billion yen consensus. The company lowered its operating income forecast by over 20% for the fiscal year ending March 2027.
"We have recently seen a significant rise in our breakeven volume due to a combination of increases in investments in human resources and future-oriented investments and the impact of U.S. tariffs," the company said.
The world's largest automaker by sales volume also cited higher expenses from the Middle East conflict and inflation. The tariff impact is real and hitting earnings.
Final Thought
The market has earned a rest.
Since the March lows, we have seen one of the most powerful rallies in recent memory. The S&P 500 has gained more than 10%. Semiconductors have surged more than 40%. Record after record has fallen.
Yesterday's reversal from intraday highs, the fading of semiconductor leadership, and the approach of psychological resistance levels like QQQ $700 all suggest the easy phase of this rally may be complete.
That does not mean the bull market is over. The earnings backdrop remains strong. AI demand continues to accelerate. The labor market is holding. If the Iran situation resolves, the path higher becomes clearer.
But expecting straight-line gains after a move of this magnitude is unrealistic. Consolidation is healthy. Pullbacks create opportunity. The investors who stayed invested through March captured the rally. The investors who maintain discipline through any near-term pause will be positioned for what comes next.
Watch the jobs report this morning. It will set the tone for the session and potentially for the week ahead.
Have a great weekend. We reconvene Monday.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered investment advice. Market Pulse is an independent publication by Dan Sheehan and is not affiliated with, sponsored by, or associated with my employer. Please consult with your financial advisor about your specific situation.